TEMPERED BY FIRE

India's steel sector faces the heat from cheap Chinese imports but holds strong long-term growth prospects driven by rising domestic demand and capacity expansion

China has dominated the global steel industry for years, and its grip on the market shows no signs of loosening. In 2023, China churned out over 1,000 million tonnes (MT) of crude steel - more than half of the global production.

But here’s the twist to this story: the country exports most of its steel at a loss, under-pricing competitors like Japan by a wide margin. China has been using this strategy since the year 2015 to keep its factories running and maintain global dominance in the steel market, even when it means taking a major financial hit.

This strategy has significant ripple effects worldwide. Enter India, which has unexpectedly turned into a net importer of steel in 2024. Between April and August this year, steel imports surged by 25%, with over 40% of those imports coming from neighbouring China. In July alone, Chinese steel made up more than 70% of India’s total steel imports, the highest share in seven years.

The impact on India’s steel sector is significant. As China dumps cheap steel into the market, Indian steel prices have plunged to three-year lows. Hot-rolled coil prices have fallen from `76,000 per tonne in 2022 to `51,000 per tonne today. Meanwhile, Chinese steel is even cheaper, undercutting Indian prices at `48,000 per tonne, making it even harder for domestic producers to compete.

IMPACT ON INDIA’S STEEL MAKERS

The steel industry is known to be highly cyclical, and the current market conditions are a sharp reminder of how volatile it can be. In a bull market scenario, steel producers can profit handsomely, while in a bear market, steel consumers - such as car manufacturers and construction companies - benefit from lower costs.

But when the global supply chain is disrupted, and countries like China flood the market with underpriced steel, it becomes harder for Indian producers to thrive.